UP Sales Tax Direct Pay Permits

Sales Tax Exemptions: When Do They Apply to Billing UP?

In most cases suppliers don't need to bill Union Pacific for sales tax. UP has "direct pay permits" in most states, and even in states that do not issue direct pay permits, UP self-assesses use tax on materials purchased using a purchase order.

There are a few exceptions to the general rule that UP should not be billed for sales tax. Suppliers should bill for sales tax on:

  1. Procurement of services, if that service is taxable in the state where it is performed. If uncertain whether a certain service is subject to tax, check with the state's department of revenue. It's the vendor's responsibility to know whether its services are subject to a state's sales tax.
  2. Procurement of fuel, if subject to sales tax (excise taxes may apply, as well).
  3. Any purchases not made with a UPRR purchase order (e.g., VISA procurement cards, service contracts, employee meals and lodging, etc.).

There are three exemptions from sales tax which commonly apply to railroads:

  • Rolling stock: locomotives, freight and passenger cars are generally exempt from sales and use tax. In some states, this exemption also applies to maintenance equipment that travels on railroad tracks, and to locomotive, freight and passenger car repair parts.
  • Fuel: many states do not subject off-highway diesel fuel to sales and use tax. However, excise taxes may apply.
  • Track material: rail, ties, signal equipment, etc. (applicable in Arizona and Texas).

The UP Sales Tax Direct Pay Permits document should be printed out and kept on file as documentation in the event your company is subject to a sales and use tax audit for not having billed UP for sales tax. If your company is audited for sales and use tax, show the auditors a copy of the document. For the states that have issued UPRR such a permit, the supplier is relieved of responsibility for collecting sales tax.

Note: The Sales Tax Direct Pay Permits document states that it applies only to materials purchased with a purchase order. If the purchases in question were not made with a purchase order, or were for services rather than materials, suppliers are not relieved of responsibility for collecting applicable sales and use tax from UPRR.